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U.S. Steel’s Purse Strings Are Open following Trump’s Tariffs

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U.S. Steel

Earlier this month, U.S. Steel Corporation (X) announced that it was restarting the construction of its EAF (electric arc furnace) in Fairfield.

The construction of the EAF started in March 2015, but the project was abandoned that same year as US and global steel prices plunged to multiyear lows.

U.S. Steel tightened its purse strings in 2015 and 2016 under its Carnegie Way program. However, the company has been investing significantly in its asset revitalization plan recently. Last year, its capex doubled on a year-over-year basis to $1 billion. For 2019, the company has provided guidance of $1.2 billion, but that doesn’t include any outlay for the Fairfield EAF.

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Granite City restart

U.S. Steel also restarted two blast furnaces at its Granite City facility last year. The company is investing in a new dynamo line in Europe that will help it “produce sophisticated silicon grades of non-grain oriented electrical steel products that will serve growing demand for electrical vehicle and power generators.” U.S. Steel is also investing in new advanced high-strength steel products that will help it expand its footprint in the automotive market. ArcelorMittal (MT) is the biggest steel supplier to automakers (SPY) globally.

Buyback

In addition to these growth pursuits, U.S. Steel announced a $300 million share buyback in 2018. The company bought back $75 million worth of its shares last year and another $25 million in January 2019. Nucor (NUE), Steel Dynamics (STLD), and Cleveland-Cliffs (CLF) also announced buybacks in 2018.

U.S. Steel’s asset revitalization plan and Fairfield EAF could be long-term growth drivers, helping it better compete in an industry that’s becoming increasingly competitive amid capacity additions by domestic steel producers.

While its peers have been looking at growth, AK Steel (AKS) has instead been seeking to bolster its balance sheet. We’ll discuss this strategy in the next article.

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